Should you fess up?: Corruption

The Serious Fraud Office’s efforts to encourage self-reporting of corruption has created quite a dilemma for the construction sector

The recent disclosure by Mabey & Johnson, the British manufacturer of steel bridges, of malpractice in tendering for overseas contracts, and the resulting prosecution creates a dilemma for the construction industry.

Mabey & Johnson apparently tried to influence officials in Jamaica and Ghana when bidding for public contracts and paid over $200,000 (£123,000) to Saddam Hussein’s Iraq regime, violating the terms of the UN Oil for Food programme. It said the issues came to light during an internal investigation by its solicitors, after which it reported itself to the Serious Fraud Office (SFO).

It subsequently pleaded guilty in court to a number of charges of corruption and sanctions violations. Sentencing is expected shortly.

Self-reporting is something the SFO has been seeking to encourage in an attempt to emulate the culture in the US, where it is the norm. It published new guidance last week, in which it emphasised the incentives for corporates to self-report. It said that, wherever possible, it would seek a civil settlement, rather than a criminal prosecution, if a company makes a voluntary disclosure. Under current EU rules, any company criminally convicted of bribery is automatically and indefinitely barred from tendering for public contracts. A civil settlement would enable companies to avoid this, though they would have to pay a fine.

However, this decision cannot be an easy one for any organisation. As the Mabey & Johnson case illustrates, not every case will be appropriate for a civil settlement, and there will never be a guarantee as to the approach the SFO will take. Amongst other factors, it said it would take into account the extent of any board involvement in the wrongdoing in making its decision.

So, if you discover wrongdoing in your firm, do you volunteer the information to the SFO in the hope you will receive lenient treatment, or do you keep quiet and hope it never comes to light?

Well, the SFO emphasised the “serious prospect” that it would in any event find out about the wrongdoing, for example, from an overseas authority, a tip-off from a competitor, or an adviser subject to notification obligations. It has made it clear that if it did, it would treat the failure to self-report as a negative factor. The guidance ominously refers to the negative publicity and disruption to the business that would then ensue.

the SFO said it would treat failure to self-report wrongdoing as a negative factor

The SFO’s initiative is part of a wider attempt to overhaul the UK’s record on overseas corruption. A new draft Bribery Bill is before parliament at present, which seeks to reform the existing patchwork of anti-corruption laws. This will introduce an entirely new corporate offence of “negligent failure to prevent bribery”.

In a report published on 28 July, the parliamentary committee responsible for scrutinising the draft legislation has recommended the “stiffening” of this new offence. The committee said a company should automatically be guilty of a criminal offence if a bribe is paid by an employee or agent, unless it can demonstrate it had in place “adequate procedures” to prevent bribery. In other words, the onus would be on the company to prove that corruption was not systemic.

It was always envisaged that the Bribery Bill would introduce corporate criminal liability where previously that had not existed. Nevertheless, the approach recommended by the committee is a tough step, particularly given the drastic consequences of disbarment for a company.

The committee has at least recognised the significance of this issue, and has urged the government to seek reform at a European level to make disbarment a discretionary penalty. Unfortunately, even if the government acts on the recommendation, it is unclear if and how quickly reform will happen.

The draft Bribery Bill still has some way to go before making it onto the statute books. It is unclear whether it will make it through parliament before the next general election and, if not, what approach a subsequent Conservative government would take.

It is, however, safe to assume that the momentum for reform is now irreversible, as is the renewed vigour on the part of the SFO to tackle overseas corruption. Whether or not the bill is passed, the construction sector is in the SFO’s sights, and more corporates will be faced with the dilemma of whether to self-report.

Postscript

Michael Roberts is a senior associate in the bribery and corruption taskforce at Lovells